The USD is sharply lower across the board, thanks to a combination of optimism around Greece, a strong European inflation print, and some softer data and rhetoric out of the US.
AUD sits at the top of the leader-board, as the RBA looks to stand pat for at least the next 3-4 months.
EUR caught a bid tone early yesterday evening, as various media sources report that the terms of a deal are being finalised. This stoked optimism than an agreement is near, despite the fact that these reports referred to deal terms being agreed between Greece’s creditors, and not with Greece itself.
In fact, it appears that Greece has submitted a rival proposal over the last 24 hours. In our eyes, there has been little real progress made in bridging the chasm between Greece’s expectations and those of its creditors.
Perhaps it is simply the step-up in urgency, evidenced by a flurry of meetings between European heads of state that has the market optimistic.
Whatever the case, EUR/USD’s ascent was accelerated by a strong core inflation reading from the euro-zone (see Interest Rates). A pair of poor US data prints simply worsened the USD’s rout across the board. EUR/USD gapped higher as it sheared through important resistance at 1.1050.
For ours, the most interesting development overnight was the Fed Governor Brainard’s first detailed speech of her tenure. She sounded much more cautious than her peers on the Fed’s voting committee, with a particular focus on the stronger USD as well as risks around global growth stemming from China and Greece.
Notably, Brainard worried out loud that the fall in oil prices might not be an unequivocal positive for the US, citing a cautious consumer class. Her speech places her firmly amongst the doves on the FOMC, and helped to extend the USD sell-off.
The AUD stands atop a crowded leader-board, posting a 2.2% gain against the USD. Much of this outperformance stems from the RBA’s policy statement yesterday. While there were softer touches evident in the wording, relative to May’s statement, there appears to be no immediate intention to ease policy further.
Our NAB colleagues believe the RBA is most likely finished in terms of this easing cycle.
NZD/USD briefly turned lower in the midst of the broad USD sell-off, thanks to a 4.3% fall in the GlobalDairyTrade Index, relative to the previous auction. The continued decline in the dairy prices comes as a disappointment. We expect prices to be broadly unchanged over the coming few months. NZD/USD broke through resistance at 0.7150, but 0.7200 looks to cap for now.
Today, the main events will be the Australian GDP report, the ECB’s policy decision (with accompanying press conference, and the US ADP report. We suspect the USD could retake its losses just as quickly, if the (data) cards fall in its favour tonight.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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